Owner & Operator of Bill Knight Automotive
Bill has over 30 years of experience in the automotive industry working at leading manufacturers and retailers. In 1984, Bill joined the Ford Motor Company and worked his way onto a committee buying dealerships under the Ford umbrella to compete with Republic Industries, later AutoZone. He purchased over 10 dealerships for Ford which were later sold to Penske Automotive Group, a company he joined in 2001 to run the same dealerships he sold. Bill spent over 7 years at Penske before buying 4 dealer locations from the company during the financial crisis. Bill Knight Automotive runs 4 franchise dealerships selling Ford, Lincoln, and Volvo vehicles and run 3 collision centres that serve all OEM brands.Read more
Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.
Bill, can you provide some context to your role at Ford when you were tasked with purchasing dealers?
I had a great 14-year career at Ford Motor Company. It was a lot of sales and marketing positions, spending a lot of time with dealerships and understanding how that retail business worked. As I worked my way up and around Ford, I found myself, in about 1996, on a committee that was looking at Republic Industries. They had just entered the market and were purchasing Ford dealerships around the country. It was very concerning to Ford Motor Company for their distribution channel.
It was just the beginning of a lot of internet activity, kind of moving away from brick and mortar to more internet and there was a lot of thought that the distribution channel was going to change; the retail process and the way people shopped for vehicles were going to change. I think the Ford Motor Company was concerned about what was happening to the distribution channel as they saw a lot of dealers selling to Republic. It was our job to look at how best to approach a new way of doing business in the US. They landed on a project that was kind of a learning laboratory to purchase dealerships in a certain market and bring them all together under one name, in a one-price, no-haggle sales process. I think the intent, which was all good, was for Ford to learn what was happening at the retail level, which they're obviously not in. That's a long way of answering that question, but that's kind of how all that started.
I guess there was tension between the franchisor and franchisee at the dealers.
I think Ford's intent was true to what they said, which was, let's go into the market, let's understand what's happening within the retail environment, experimenting what could be done that they then could share with their dealer body. I do believe that was the intent. Unfortunately, the relationship between the company and the dealer network became adversarial. How can you be my manufacturer and my competitor at the same time? Ultimately, that proved to be too much to overcome after three or four years, which is why they disbanded the project.
How do you compare retail distribution world and how OEMs were looking at distribution in the 90s versus today?
There are so many similarities between what happened then and what's happening today. Whether it's Ford or any of the manufacturers, what was happening then was a lot of unknown of how the consumer was going to behave. It was just the beginning of that transition of information. Forever, the dealership network had the information. We had the vehicle, we had the price, we had the information you needed to make your purchase decision and you had to come to us to get it. The 90s brought in the change of information moving from the dealership network to the consumer. That's what started market-based pricing on pre-owned vehicles that really became popular seven or eight years ago and is happening today, certainly on the new vehicle side as well. The information sits with the consumer. There are so many places to get information about the vehicle, information about the price and whether it's a good price or a bad price. It used to be that you had to come to see me if you wanted that information. I think the enlightened dealers recognized that in the early 2000s and changed their model. Many didn't and many still haven't today.
How is the OEM looking at retail distribution, given there’s so much price transparency?
Looking at the pace of change today with technology and its acceleration with the pandemic, there are many questions. For me, there are a lot of similarities between now and the mid-90s. I hope and I believe – I'm now more familiar with the Ford side – the answer lies in working together. If there was a mistake in the mid-90s on the project that we had with the Auto Collections, it’s that it was done without dealer input. That was a big lesson learned, at least at Ford Motor Company.
Now, the dealers are always going to have a role in the process and the dealer network is always going to have a role. The answer now is figuring out how to do that together and having an open, transparent dialog about what that looks like and how it works best for the manufacturer and the dealer.
How is the OEM influencing retail today? Looking at the economics of their business and the shift to EV, are they looking to get more involved in retail and potentially even claw back margin from retail?
There are big pressures and a big movement right now – certainly companies like Tesla and everybody else coming behind them – in trying to keep the process for the consumer as transparent as we can make it. I give Tesla all the credit in the world, as they’ve developed what they've developed, but they've also developed it with a luxury product. Retail business can be messy, dealing with the stuff that we deal with every day of getting people approved for credit when there's negative equity there and knowing how to deal with all those things. The manufacturers want simplicity, transparency, ease of doing business. That is clearly what they want and there is a lot of energy right now trying to figure out how to make these websites transactional, even at tier 1 at the OEM side, so you can purchase a vehicle online if that's what you choose to do. There's a lot of energy behind that, but it's complicated. It's complicated by credit profile; it's complicated by negative equity and I think that's why the dealers and the OEMs have to work together to figure that out.
There’s no risk in the OEMs somewhat disintermediating the dealers?
There are too many dealer laws out there that would prevent a lot of that. But I would hope that that's not what becomes necessary. You would certainly hope it’s more collaborative between the dealer network and the OEM, working together to figure out how to make those websites transactional for those who want to shop at home. Today you can purchase a vehicle on our website. You can do everything. You can find your vehicle, you can have your trade-in appraised, you can get approved for credit and then we can email you a DocuSign link where you can do everything online. Then you can come in and spend 30 minutes here picking up the vehicle. Some people like that and some people don't. That's the trick; how to build a system that attracts and appeals to everyone, not just a certain segment.
Can we talk about the new car sales journey? What has been the biggest challenge in changing that top-of-the-funnel approach online versus brick and mortar, for you as a dealer?
It gets to your sales process and whether your dealership's culture and sales process are one of up-front pricing – by upfront pricing, I don't mean one price; I just mean upfront pricing in that this is how we do it – then an easy transition through the F&I process, then online works great. If your model is one that I’m going to sell it for a loss on the sale of the vehicle and then I’m going to make it up by trying to take the trade for less than I really think it’s worth and then make it up on F&I products in the back, the online process is problematic, because everything is out in the open. That's the tug of war right now, depending on what the sales process happens to be in anyone's particular dealership.
Online today, as I mentioned earlier, the vehicle price is marked, the ability to get your trade appraised is there. We know there's too much information up there. You can't trick people. There's too much information out there in terms of what my trade is worth. It's an opinion and it's always an opinion that we might disagree on, but if it's worth 15, I can't tell you 10 and think that's credible. All of our after-market products are priced as well. So if you're not comfortable in that environment, with having everything priced, with an open and upfront trade evaluation, then the online model is problematic.
How has this shift online impacted your new sales gross margin?
The answer is, it hasn't. It's still a supply and demand game and so what affects your margin is the value of the product. We're right at the beginning of launching a new Bronco Sport in North America right now. That has a lot of value, a lot of perceived value. Demand is high; supply is really low. That helps margin. Whether it's online, offline, however that looks, in my opinion, margin is not necessarily driven by online or offline. It's driven by the value of the product.